Video Game Industry: The Consoles (Part 1)

Readers, welcome back to my blog. This week I have decided to take a break from the topic of format war, and introduce you all to the world of console gaming. After all that battles, I think that we deserve a little time off, don’t you? For the topic of video game consoles, there are a lot of areas to be discussed. This is despite the fact that console gaming is only a segment of the entire video game industry. As a result, I am now splitting into four major areas: Introduction, Competitive Dynamics, Business & Revenue Models, and Future Trends. I hope that we are learning a little more from this segment of the hugely popular industry. Now, let us get started on our journey shall we. (Expect four parts to be posted separately for your convenience)

Introduction

The game console segment of the video game industry has evolved tremendously throughout its history. The first ever game console, the Magnavox Odyssey, was released in 1972. Later, the same developer created one of the most embraced and popular console games of all time, PONG. At that time, the console game came in various types of systems under different manufacturers and names. All of them played the same type of ping-pong game, although ATARI was the first ever developer. You could imagine the difference between that period and the current diversity of console games available. As such, console systems can presently be divided into two major categories. They are either classified as home systems or handheld systems. Unlike a personal computer (PC) which has various functions, game consoles are bought primarily and used solely for the purpose playing video games. This trend is definitely beginning to change as technology keeps on advancing (I will discuss this in the very last part in Future Trends).

Overall, the console segment accounts for $6 billion of the $30 billion global video game industry. In the United States, the console market is valued at $3.3 billion of the total $12.5 billion. The number of titles available for game consoles exceeds tens of thousands. Some of these titles are able to develop into franchises, and become crucial for game developers and console manufacturers alike as a selling point for their respective revenue streams. Some examples include Nintendo’s long-time running Mario and Pokemon series. As of the fall of 2006, they have each sold 193 millions units and 155 millions units worldwide (You can view Nintendo’s comprehensive sales here). Therefore, a good game can mean a difference between success and failure for the many players of the game console industry.

Talking about the players, they are also divided into several categories. There are the game developers, game publishers, and console manufacturers themselves. Game developers specialize on the software of video games, and can develop on one or multiple systems of the consoles. To be more specific, game developers can be further broken up into third-party developers, second-party developers and first-party developers. Game publishers, similar with book publishers, are responsible for their products’ marketing and manufacturing. They work extremely closely with game developers to ensure a smooth operation. Sometimes, they are even the same entity altogether (example: Nintendo). By the end of 2006, Electronic Arts become the top game publishers according to the Game Developer’s magazine.

Lastly, we have the console manufacturers themselves. These guys are more concerned with the hardware side of things. Currently, the main players are the big three of Nintendo, Sony, and Microsoft. Looking at the U.S. alone for console sales in the first quarter of 2007, we can infer who the major players in terms of console makers. Nintendo is doing extremely well with its Nintendo DS Lite and Wii consoles. If this keeps up, Sony’s stranglehold in the console market may just loosen up. Competition is certainly starting to heat up with the releases of the next-generation consoles as well as the game titles that come with them.